Final answer:
The purchase of machinery would not be included as a cash flow from operating activities in a statement of cash flows, as it is an investing activity. Banks may list money as an asset that is not physically in the bank due to the practice of lending most of their deposits. The value of loans in the secondary market can fluctuate based on the borrower's payment history and changes in economy-wide interest rates.
Step-by-step explanation:
The item that would not be included as a cash flow from operating activities in a statement of cash flows is b. Purchase of machinery. Operating activities include transactions that relate to the primary operations of the company, such as cash received from sales of goods or services, cash payments to suppliers and employees, payment of income taxes, and collection of interest on notes. However, the purchase of machinery is considered an investing activity, as it relates to the acquisition of long-term assets that are used in the production of goods or services.
Regarding the bank balance sheet question, the money listed under assets may not be physically in the bank because banks operate under a fractional reserve banking system, which means that they lend out most of the deposits they receive, keeping only a fraction as reserves. The assets you see on the balance sheet reflect the total amount of money the bank has loaned out or invested, plus the actual reserves held in the bank.
When buying loans in the secondary market, the price you would be willing to pay for a given loan can vary based on several factors:
- If the borrower has been late on a number of loan payments, you would likely pay less for the loan due to the increased risk of default.
- If interest rates in the economy as a whole have risen since the bank made the loan, you would pay less because the loan is now at a lower interest rate compared to new loans being issued at higher rates.
- If the borrower is a firm that has just declared a high level of profits, you might pay more as the borrower's enhanced profitability lowers the risk of default.
- If interest rates in the economy as a whole have fallen since the bank made the loan, the loan's higher interest rate is more attractive, and you might pay more for it.